August 18, 2021
State governments want their software to be secure, compliant and designed for the 21st century. As such, many state governments are evaluating their current ERP platforms to determine how to modernize financials, procurement, human capital management, and payroll applications.
While some have pursued modernization by embarking on multi-tenant cloud journeys, most organizations are still in the planning phase.
They are moving in the right direction, though, as multi-tenant cloud SaaS software ensures applications are continually enhanced without the need for a multi-million-dollar, multi-year project. Multi-tenant cloud software also protects limited resources from overwhelming or menial tasks such as:
- Babysitting servers
- Applying and testing an endless number of patches
- Performing backups
- Managing disaster recovery
The Right Way to Move to the Cloud
Many ERP vendors offer interesting “migration” paths to their in-progress cloud solutions. Before you head down this path, it’s important to understand what it entails. In fact, hiring a third-party expert to guide your journey to the cloud is a wise decision.
Another best practice is taking the time to compare the capabilities of emerging cloud applications with the on-premise capabilities these same vendors may offer. Just because capabilities may exist in an aged, customized on-premises system does not guarantee capabilities are available in the cloud.
If they are available in the cloud, you should ask if they are only available as customizations. This would not be ideal as it would impede the automatic software updates possible in a customization-free multi-tenant cloud.
What State Governments Need in a Cloud Solution
When it comes to a state’s financial requirements, you must go much deeper than the typical ‘Procure to Pay’ or ‘Order to Cash’ business processes. Be sure to discuss how your organization can meet these state-specific requirements:
- Custodial account management
- Vendor and taxpayer offsets
- Front-end split automation for fund accounting
- Pooled cash and cash tracking/editing by agency and fund
- Behavioral talent modeling
- Secure, extensible cloud platform
- Embedded governance, risk, and compliance
- FedRAMP, StateRAMP, and NIST compliance
Let’s break these down in more detail:
Custodial Account Management
Does your ERP software follow the guidance provided in GASB Statement 84?
This Statement establishes criteria for identifying fiduciary activities for the state. The focus of the criteria is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists.
Separate criteria are included to identify fiduciary component units and post-employment benefit arrangements that are fiduciary activities.
Does your ERP provide the tools to easily manage, maintain and monitor the trusts? Can your ERP present a statement of fiduciary net position and a statement of changes in fiduciary net position for activities meeting the new GASB criteria? This includes all four fiduciary fund types outlined in Statement 84, including: (1) pension trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds.
Vendor and Taxpayer Offsets
How does your ERP system collect past-due debts owed to the state? Can you automate the process to ensure the state captures all funds it is owed?
Automation from your ERP should provide users with an offset functionality to collect delinquent debts that are owed to the state. You should determine if you can configure business rules to divert taxpayer’s refunds and government payments to pay state debts, such as unpaid taxes, traffic fines, or child support.
To the extent allowed by law, when a match happens, the ERP should withhold (offset) money to pay the delinquent debt to the state.
Front-End Split Automation for Funds Accounting
Does your ERP solution require manual assignment and distribution of grant funds to the state’s programs? Does the ERP expect personnel to understand rules associated with ensuring funds are allocated to the appropriate project and program?
Front End Split functionality allows you to allocate expense distributions as well as program income to a project’s sources of funding. The source is usually external grants and their internal matches. The distribution must link the fund to the source that it is recorded in. State team members cannot be expected to know the funding rules associated with each individual grant that is funding the project or program.
You should ensure your ERP can evaluate the funding rules defined for the funding source and appropriately allocate, prior to posting, the sub-system expense distributions. This ensures accurate and up-front allocation of the expenditures to their funding sources. It also enables near real-time visibility into all encumbered and actual expenditures by the funding source to ensure maximum reimbursement.
Pooled Cash Configurations
How customized are your cash edit rules? Does your ERP provide configurable rules to meet your state’s requirements, or are these heavily customized to your business processes? State’s business processes differ and often require configurable rules to ensure the accurate and auditable application for pooled cash, cash by agency/fund, cash groups, and cash reserves. Your ERP should provide configurable cash edits to ensure your organization’s cash is accurately tracked and controlled all while providing the complete audit trail to ensure your ACFR reporting is valid.
Behavioral Talent Modeling
Does your ERP offer a modern approach to talent acquisition and retention? How can a cloud solution assist in attracting and retaining the best talent in the state?
Talent acquisition and workforce development are a constant focal point for all states. Only the best team can provide the level of service a state desires for its citizens.
You should be able to model your best employees and then either hire more or train existing team members to meet these high standards. Investigate if your ERP vendor can offer modern tools, such as patented behavioral modeling, so you can hire, train, and retain the best possible employees to meet your state’s mission.
Secure, Extensible Cloud Platform
Does your ERP provide a secure platform that also supports critical capabilities for integration reporting and document management?
Even cloud ERP solutions must support additional capabilities to provide a more holistic solution for states. In fact, organizations generally need additional applications to meet their needs, so you want to make sure your vendor has standard, secure integration options. Beyond integration, you should make note of other necessary capabilities, including a data repository for enterprise reporting; document management; security and single-sign-on; configurable workflow; and artificial intelligence.
Embedded Governance, Risk, and Compliance
Does your ERP provide automated financial controls to identify and reduce fraud and improper payments, or are your financial and provisioning tools manually achieved? Remember, as you migrate your ERP to the cloud, some financial controls you have deployed (or are manually performing) must be enforced:
- Segregation of duties (SOD) and compliant provisioning for all new hires and transferring employees should become part of your best practices for automating your provisioning processes. Proven SOD libraries ensure you never introduce nor allow violations that result in fraud.
- Periodic attestation ensures your management team review and approves all ERP role assignments.
- Transactional monitoring capabilities are necessary to identify fraudulent or erroneous activities, such as duplicate vendor payments, split purchase orders, access to sensitive general ledger accounts – before they negatively affect your financial statements.
You cannot rely on manual processes to ensure compliance with sound fiduciary principles.
FedRAMP, StateRAMP, and NIST Compliance
As your ERP vendor created its cloud version, did it adopt compliance standards to reduce external attacks? Were standards adopted as part of the ERP’s applications design or customized for each deployment?
Be sure to evaluate current compliance standards dictated by your state’s cybersecurity policies and determine whether your current ERP vendor has fully adopted them. Also, ask if the compliance standards were designed with their cloud applications or if they must be re-implemented for each new customer.
Some organizations currently require only NIST compliance but are evaluating FedRAMP or StateRAMP as part of their complete cybersecurity roadmap. Understand what your ERP vendor’s current and future cybersecurity standards are.
Many states are embarking on cloud migration for their ERP platforms. Ideally, the result for each of these organizations will be a modern, secure solution with financials, supply management, human capital management, and payroll capabilities. If correctly implemented, this solution will streamline how the organization meets and exceeds its mission.
Asking the right questions, as suggested in this blog, will provide insight into critical concepts and requirements that ensure your journey is successful.
The Infor Public Sector team collaborates with many state organizations to ensure critical financial; procurement, human capital management, and payroll solutions meet required guidelines and mandates.
Infor has partnered with Panorama’s ERP consultants to also help you determine if a cloud migration makes sense and guide you through the selection process.